WASHINGTON -- Call it the Resolution Trust Corp.'s incredible shrinking deal.

Ten months ago, the agency announced its biggest bulk real estate transaction ever - the sale of 50 to 100 office buildings appraised at $500 million to an investment group called Patriot American Corp.

L. William Seidman, who was RTC chairman at the time, touted the sale as proof that the RTC had "turned the corner."

Alas, it was all wishful thinking. The deal that the agency begins closing this month with Dallas-based Patriot will involve an undetermined number of properties appraised at $179.8 million, in three transactions. The actual sales price won't be made public until the sales are consummated.

Amy Hersh, the RTC's acting assistant director of real estate owned sales, acknowledged the Patriot deal did not live up to its billing.

What Happened

"The mistake we made in that deal ... is we didn't have the assets clearly identified prior to entering the transactions," she said.

The RTC, said a source familiar with the transaction, sold itself on the bulk sales concept before making sure it had enough available properties to make the deal work.

Another problem: the deal was negotiated, not bid. That enraged Congress and other would-be property buyers.

Rep. Frank Annunzio, D-Ill., accused the RTC of selling property to Patriot for less than other bidders were willing to pay.

Private sector people complained that real estate they were negotiating to buy suddenly was not for sale because it was being bundled into the Patriot bulk deal. Because of the controversy, the negotiations dragged on for months and months.

The Silver Lining

But the hoopla surrounding Patriot generated sales to a lot of other buyers, Ms. Hersh said. "The knowledge that if they did not act quickly it would end up being sold to Patriot" drove many buyers to complete deals. Consequently, the RTC completed an even bigger bulk sale to a joint venture of G.E. Capital and Robert Bass. It was bid, not negotiated. The buyers paid $506 million for 175 commercial loans and real estate properties with book value of nearly $1 billion.

In the initial transaction with Patriot, the investors will buy five buildings with an appraised value of $47.2 million: the Bourbon Orleans Hotel in New Orleans' French Quarter; the Bexar Savings tower in San Antonio; the Y.O. Ranch Hilton in Kerrville, Tex.; and office buildings in Dallas and Houston.

RTC officials said Patriot will buy 19 more properties next month with an appraised value of $72 million. A third set of properties with an appraised value of $60.6 million is expected to be sold later.

The cash-flow mortgages the RTC is providing to Patriot let the buyer defer interest payments in return for a share in the income from the properties.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.